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VMware plans cloud spin out to keep up with Microsoft, Amazon and Google

VMware (s vmw), a Palo Alto, Calif.-based virtualization and software company, is planning a corporate shakeup. GigaOM has learned that VMware hopes to spin out some of its cloud assets, including its Cloud Foundry platform-as-a-service division and parent company EMC’s Greenplum assets into a separate company, according to sources close to the deal. The new company will also include assets of Project Rubicon, an infrastructure-as-a-service joint venture between VMware and EMC.

The move would help VMware, which is majority owned by storage vendor EMC (s emc), offer a competitor to cloud computing services offered by Google (s goog), Microsoft (s msft) and Amazon (s amzn). All three of those players are building out the infrastructure and platform layers to become the IT departments for developers and enterprise customers.

The plans for VMware’s cloud asset spin-out are said to be at an advanced stage and some of the pieces are already in place, but the spin-out isn’t yet complete. VMware declined to comment on the spin-out plans.

The scoop.

Our sources say we might hear more about these developments on July 23 when VMware announces its second-quarter earnings, although there is a chance that VMware could wait until late August when it hosts its annual VMworld user conference in San Francisco. From what we have learned, this new company would include the following pieces:

Greenplum + Chorus: Greenplum is EMC’s big data division, which sells its namesake analytic database as well as two Hadoop distributions and analytics collaboration software called Chorus. Greenplum also sells preconfigured appliance, called the Big Data Appliance, on which to run all its software.

Project Rubicon: This is the name of an EMC and VMware joint venture created earlier this year and appears to be the IaaS play. Rubicon has an independent board, but people working for it are paid by VMware or EMC. At its creation, the Rubicon employees consisted of the technical team behind Cloud Foundry, but not the marketing or operational staff. The venture was designed to help give the sense of independence from EMC and VMware for Cloud Foundry customers. Project Rubicon includes IaaS-type technology developed by the Mozy team. Mozy was a storage company acquired by EMC in 2007 and taken over by VMware in 2011.

We’ve heard two possible names to head the new company — both former Microsoft (s msft) executives. One is Tod Nielsen, who is the co-president of VMware’s applications business and was previously the VP of Microsoft’s platform group. The other name we’ve heard bandied about is Mark Lucovsky, who is the VP of Engineering in charge of Cloud Foundry and was a Microsoft employee who helped build Windows NT.

Why a spin-out makes sense.

While VMware is a public company, EMC owns about 80 percent of its stock. That causes many to question how independent VMware can really afford to be, especially as it builds out services such as Cloud Foundry that might reduce overall sales of EMC gear to customers.

If VMware and EMC do spin out Cloud Foundry, as we hear they plan to do, it may be because they want to help alleviate the perception that EMC and VMware are heavily tied to Cloud Foundry. For many in the developer and enterprise community, the concept of cloud computing is built on the idea of virtualization and commodity hardware. EMC’s expensive storage boxes, which were used in building out Cloud Foundry, are at odds with that vision. Others are concerned that VMware’s ties to Cloud Foundry will mean that users get locked into the VMware ecosystem if they use the service.

The competitive picture.

Most likely, the new company would focus its efforts on corporate customers and corporate developers. And that makes sense, as this is the big pot of gold for cloud companies. According to a recent estimate by research firm Gartner, companies will spend as much as $207 billion on public cloud computing in 2016 versus the $91 billion they spent in 2011. Amazon (s amzn) chief technology officer Werner Vogels, in a conversation at our Structure 2012 conference, pointed out that AWS, an early leader and pioneer in cloud services, is already in deep conversations with enterprises.

Despite near ubiquity in corporate data centers thanks to its flagship server-virtualization software, VMware needs to firm up its cloud strategy. It has all the pieces — vCloud, vFabric, PaaS, Cloud Foundry, Mozy and a suite of software-as-a-service applications (including from recently acquired big data startup Cetas) — but they haven’t yet coalesced into a cohesive offering. And now people are leaving.

Of course, Vogels’ AWS remains absolutely dominant in the IaaS world (it even lets users port VMware-based VMs to its cloud) and is always adding new features and services to suck in even more workloads. It’s also the go-to cloud for developers wanting a relatively easy way to get virtual resources on which to run their applications. This is true even indirectly because so many PaaS offerings (e.g., Heroku, AppFog and DotCloud) are hosted in Amazon’s cloud and pay a bill to AWS every month.

Big data big daddy.

With the new entity, though, EMC’s big data analytics platform from Greenplum could hold the keys to the kingdom. While analysts predict that spending on cloud computing will increase sharply, they predict even faster growth for spending on big data software and services. And as those two trends converge, with big data workloads moving increasingly into the cloud, the expected EMC-VMware spinout would seem poised to capitalize because of its internal knowledge base in both areas.

And if success in IT is all about who gets the most developers, EMC has been active on that front too. It acquired Pivotal Labs, and at the time of the acquisition, Greenplum boss Scott Yara pointed out that Greenplum was open-sourcing its Chorus software, which is a Facebook-plus-style platform for sharing data and data models within a company, to help build a community of developers that can create apps atop the platform.

Seen in that light, spinning out the Greenplum and Cloud Foundry assets makes sense. It gives EMC and VMware a platform that could tempt corporate users in a way Amazon Web Services or Google’s Compute Engine might not. With a big data play associated with its PaaS it has something corporate customers are increasingly interested in, on a platform that may even span multiple clouds. This spin out could help EMC capitalize on the cloud even as it cannibalizes its hardware business.

7 Responses to “VMware plans cloud spin out to keep up with Microsoft, Amazon and Google”

There’s an interesting post over at the 360 blog on why VMware just doesn’t seem to “get cloud providers”, and their business model, long and short: VMware want’s to be a per-customer-tax (be it linked to vRAM, sockets, servers, or whatever) and cloud providers cant countenance their pricing or their pricing model while there are viable alternatives on the market:

Interesting statement by VMWare. Well, regardless if its VMWare or Microsoft – I just love this cloud technology, It just helps me break from my IT Hassles, its reliable, and its secure. Moreover, its helping organizations to save up to 40% (OPEX and CAPEX) by eliminating the cost of owning traditional PC/Server environments. Also, helps in Increasing energy efficiency by 80% through virtual servers and virtual desktops. Addition to this. cloud computing also eliminates the cost of purchasing, supporting, and upgrading equipment and software. Isn’t this so flexible that you pay only for the benefits and applications you need in a low, monthly rate â€“ nothing more.

This whole article comments on this story as if it is a straight fact and not a rumor, but does not disclose a source. It’s a well-diligenced piece, which adds credibility of course, but would be crazy for shareholders to react in any way to this without knowing what “our sources” means.

In response to recent change of competitive cloud landscape, spinning out the trio assets might be seen as a pure risk management decision, that in theory isolates potential failure which may affect EMC’s other core processes/revenue stream considerably.

In other words, the trio are lambs to slaughter to save agony aunt’s reputation from poor cloud strategies. :)

VMware does need to do something to fight the perception that EMC heavily influences their operations and cloud offerings. The two companies don’t seem to talk much outside of traditional partner channels. I engaged EMC a while back on virtualization products and they didn’t have a prejudice to VMware at all. It was surprising.

Sounds like they have the perception without any of the benefits of actually forcing cross marketing of products.